Lecture 09 Taxes - Feb 17 09

Lecture 09 Taxes - Feb 17 09 - TAXES Chapter 11 1 Recall...

Info iconThis preview shows pages 1–11. Sign up to view the full content.

View Full Document Right Arrow Icon
1 TAXES Chapter 11
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 Recall Total Potential Income Less vacancy effective gross income Less operation expenses NOI Debt service Before tax cash flow How do we figure taxes??
Background image of page 2
3 Classification of Real Property from Federal Tax Perspective Owned as a personal residence by individuals Held for resale to others (inventory) dealers/devlopers Held for the use in a trade or business (Section 1231 asset) Held for the production of income or investment (Capital asset)
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
4 Treatment of Characteristics for Tax Purposes Tax Classification Deprec. Allowance Tax on Gain From Sale Loss from Sale Operating Exp. Deductions Property Tax Deduction Interest Deduction Tax- Deferred Exchange Selling Exp. 1. Personal Residence No Capital Gains Not Deductible No Yes Yes No Yes 2. For sale to Customers No Ordinary Income Ordinary Loss Yes Yes Yes No Ordinary Bus. Income 3. Trade or Business Yes Capital Gains Deductible Yes Yes Yes Yes Deduct. from Sales Price 4. Investment Yes Capital Gains Deductible Yes Yes Yes Yes Deduct. from Sales Price
Background image of page 4
5 Taxable Income from Operations differs from NOI Only the interest portion of the loan payment is deductible Tax code allows deductions for depreciation . Taxable Income = NOI - Interest - Depreciation Deduction Mortgage deductions Total interest paid per year can be obtained from the mortgage schedule. Loan points = These are interest payments that are paid as a lump sum at the origination date of the mortgage are deductible. They are deductible, however, the deduction must be amortized over the life of the loan for commercial mortgages and refinance residential mortgages. Points associated with the mortgage to purchase a home are fully deductible on the tax year in which they are incurred.
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
6 Determining Payments Recall Office Building Example: Initial Principal $5,950,000Contract Rate10%Maturity 20 years paid monthly (240 Months)Payment$57,418.79/month; $689,025/ year Determining Payment Calculation Solution: N = 20 x 12 = 240 I = 10 ÷ 12 = .8337 PV = - 5,950,000 FV = 0 Solve for Payments: 57,418.79 Month x 12 $689,025 Annual Payment
Background image of page 6
7 Commercial Building Mortgage Schedule (End of Year - Annuals of Monthly Payments) 1 2 3 4 5 Annual Payment $689,025 $689,025 $689,025 $689,025 $689,025 Interest Payment $590,569 $580,259 $568,869 $556,288 $542,388 Prin. Payment $98,457 $108,767 $120,156 $132,738 $146,637 Mortgage Balance (V t ) $5,851,543 $5,742,776 $5,622,620 $5,489,883 $5,343,245
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
8 Determining Loan Balance Calculation Solution after 1 year : N = 19 x 12 = 228 I = 10% ÷ 12 = .8333 PMT = -$57,418.79 FV = 0 Solve for Mortgage Balance : PV = $5,851,543 Therefore Principal Reduction in Year 1 : 5,950,000 -5,851,543 98,457 Principal Portion Interest Portion : Total Payment: 689,025 Less Principal Reduction 98,457 Balance: 590,569
Background image of page 8
9 Original Cost Basis: The initial period purchase price of the real estate asset (cost of land and improvements, acquisition and installation fees).
Background image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
10 Depreciation Buildings must ultimately be replaced. Investment in the improvements is allowed to be
Background image of page 10
Image of page 11
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 45

Lecture 09 Taxes - Feb 17 09 - TAXES Chapter 11 1 Recall...

This preview shows document pages 1 - 11. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online